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The Basel II capital adequacy framework is a regulatory tool that is designed to help mitigate the risk that haunts financial institutions.
Most banks agree that at the very least, Basel II compliance will enhance their risk management processes. There is also expected to be an improved understanding of product pricing, and better alignment of risks and returns.
The global audit and business advisory firm conducted a similar survey in the Asia-Pacific region in November 2004 on the preparedness of banks for the implementation of Basel II.
The survey found that 67% of the respondents sampled in that region were either in the early stages of implementation or had yet to embark on implementation, an indication that South African banks are not lagging behind their global counterparts.
By comparison, the Ernst & Young South African survey titled Basel II: Addressing the Challenges, revealed that banks have at least begun implementing action plans.
All of the Tier I banks (the top 5 banks in South Africa by assets) have started the process, while half of the Tier II banks have done the same.
The survey indicates that more than 50% of South Africa's banks are at least half way through the implementation process.
As is the case in South Africa, it is the larger Asian-Pacific banks that have made the most progress in preparing themselves for the implementation of Basel II, which takes effect at the beginning of 2008.
Only 10% of Asian-Pacific banks indicated that they are either ready to implement or very close to implementation.
Anton de Souza, Lead Financial Services Partner at Ernst & Young says there are considerable benefits to be derived from the new regulatory requirements, although not all banks anticipate they will extract the same set of benefits.
But the banking industry believes that the benefits will outweigh the costs.
Some banks expect that the new regulatory regime will have strategic and operational consequences for their organisations, in that it is likely to impact the performance management and business forecasting processes.
The survey also requested the respondents to reveal what challenges they have or will encounter in preparing themselves for Basel II's implementation.
De Souza says they've notice two major changes from the last survey, which were conducted in June 2003.
"Firstly, budget allocation is less of a concern than what it was two years back. Secondly - a new development - there is likely to be a major hurdle in aligning the local banks' African operations and subsidiaries into the Basel II framework.
"To gear these African banks for implementation will require substantial investments, both in time and in resources."
If there is one thing that hasn't changed though, it is the focus on technology. It will be the single biggest focus, both in resources and expenditure, with some banks required to make major changes to their IT platforms.
Even for those with compatible platforms, resources will be required to gear their systems for the introduction of Basel II.
